April 9 (Bloomberg) -- Qantas Airways Ltd. expects to get
approvals to start a budget carrier out of Hong Kong by the end
of the year as Australia’s biggest airline seeks to tap travel
demand in China with its low-fare unit Jetstar.

Jetstar Hong Kong, set up in partnership with China Eastern
Airlines Corp., will focus on flying to secondary Chinese cities,
Qantas Chief Executive Officer Alan Joyce said in a Bloomberg
Television interview at the Boao Forum in Hainan, southern China
on April 7. The airline will have about 18 aircraft, he said.

The first Hong Kong-based budget airline will help Qantas
challenge Cathay Pacific Airways Ltd. for passengers in the
financial hub as Joyce tries to turn around unprofitable
international operations. Airlines in China carried 319 million
people last year, a number Jetstar had previously predicted
would more than double to 800 million by 2020.

“We’ve a successful model with Jetstar out of Singapore
going into a lot of secondary cities in China and we think
that’s where the focus of this expansion with China will go,”
Joyce said. “The scale of such cities are massive, and there is
huge population, and a huge potential to get people there.”

No budget carrier has a hub at Hong Kong Airport. Hong Kong
Express, an affiliate of Hong Kong Airlines, has said it will
convert to a low-cost model. Oasis Hong Kong Airlines Ltd.,
which operated budget long-haul flights, collapsed in 2008 after
racking up losses of about HK$1 billion ($129 million) in less
than two years.

Scoot, Tiger

Qantas and Singapore Airlines Ltd. are among carriers that
have started low-fare airlines to tap the boom in air travel
amid economic growth in China, India and Southeast Asia.
Singapore Airlines started Scoot and is the largest investor in
Tiger Airways Holdings Ltd. Scoot and Tiger both fly to China.

“China is a very important market for the group,” Joyce
said. Qantas has expanded its China operations, he said.

Shares at the Sydney-based airline rose 0.9 percent to
A$1.75 as of 2:02 in the city. The stock has gained 17 percent
this year, compared with a 3.8 percent decline in the Bloomberg
Asia Pacific Airlines Index.

The carrier said in February it reduced losses at its
international unit by 65 percent in the six months ended
December after dropping unprofitable routes and retiring older
planes. Qantas’s first-half net income more than doubled to
A$111 million after it took cash from canceling orders for
Boeing Co. 787 jets.

Dreamliner

Qantas would likely take delivery of the first of its 787
Dreamliner airplanes in September, Joyce said during the
interview. Even so the airline would work with U.S. and
Australian regulators to ensure the plane is safe for use before
putting the aircraft in the air, he said. Dreamliners have been
grounded since mid-January.

Qantas said earlier this month Europe bookings rose six-fold as an alliance with Emirates reduces flight times between
the continents. The agreement with the Dubai-based airline cuts
average journey times by more than two hours from Melbourne and
Sydney to the top 10 destinations in Europe.

Bearish bets on Qantas fell to an all-time low on optimism
an alliance with Emirates and cost cutting will return the
carrier to profitability after its first loss in at least 17
years. The ratio of outstanding puts to sell Qantas shares
versus calls to buy dropped to 0.2881-to-1 on March 28, the
lowest on record, according to data compiled by Bloomberg.

The credit rating for Australia’s biggest carrier’s was cut
to the lowest investment grade by Standard & Poor’s in September,
citing “structural pressures” on international routes.